Larsen & Toubro Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Strong execution, softer orders: Group revenues grew 21% YoY on broad-based execution momentum, while order inflows declined 10% YoY against a high base that included ultra-mega hydrocarbon orders last year.
• P&M margin expansion sustained: The Projects & Manufacturing portfolio margin expanded 20 bps YoY in H1, and full-year guidance of 8.2–8.25% was reaffirmed.
• Renewable energy carved out as standalone vertical: Effective September 2024, the company separated Renewable Energy from Power Transmission & Distribution, signaling sharper focus on the green energy opportunity.
• Thermal power strategy reset: L&T will selectively pursue BTG packages after negotiating better terms, reversing its earlier full withdrawal from thermal EPC, a move that fits its manufacturing core and de-risks the portfolio.[11-12]
• What to watch next quarter: Whether the promised H2 domestic ordering rebound materializes, the outcome of NTPC BTG bids for 6,400 MW, and any Hyderabad Metro land monetization crystallizing before year-end.

Order Inflows & Prospects Pipeline

• Inflows decline: Group order inflows of ₹80,000 crore fell 10% YoY, entirely explained by the high base effect from two ultra-mega international hydrocarbon orders received in the prior-year quarter.
• Prospects pipeline shrinks modestly: The six-month prospects pipeline of ₹8.08 trillion dropped 8% YoY, driven primarily by a fall in Hydrocarbon and CarbonLite Solutions prospects.
• Domestic ordering poised for H2 rebound: Domestic prospects stand at ₹4.6 trillion, and management expects ordering to resume at a larger scale in H2, supported by government and private sector financials.
• State Capex selectivity: State-level prospects have moderated as some states divert revenues to subsidies; L&T is being selective, pursuing only opportunities where both win probability and payment timelines are favorable. [19-20]
• Private sector opportunities intact: Demand remains strong across real estate (healthcare, data centers, residential, commercial), while minerals and metals domestic prospects represent roughly half of a ₹45,000–₹50,000 crore total opportunity.

Segment Performance

• Realty margin volatility: Realty revenue is recognized only on handover; quarters with large handovers after municipal clearances show a revenue and margin bump. The current quarter realty margin was almost 37%, but management did not provide a typical or embedded margin range. [16-17]
• Hyderabad Metro loss narrowing: The quarterly loss of ₹207 crore is normal operations; improving ridership and lower interest costs are gradually reducing losses, though the process remains slow.

Energy Transition & Manufacturing Bets

• Renewable Energy carved out: Effective 1 September 2024, Renewable Energy was separated from Power Transmission & Distribution into its own vertical within the Infrastructure segment, signaling sharper strategic focus.
• Thermal BTG re-entry: After withdrawing from full thermal EPC due to unfavorable contracting terms, L&T negotiated better terms for BTG packages and will now selectively pursue them. The move fits its advanced manufacturing capability and de-risks the portfolio by reducing dependence on third-party contractors.[11-12]
• NTPC BTG bids in play: L&T is well placed in bids for 6,400 MW across three NTPC projects; the customer is expected to award two packages to L1 and potentially a third to L2. Outcome expected within Q3.
• Electrolyser capacity build-out: A technology license for 4 MW electrolyser design was signed with McPhy in September 2024, and the first automated robotic stack assembly line with 150 MW capacity was commissioned at Hazira. Capacity will ramp to 500 MW in the near-to-medium term and 1 GW over the medium-to-long term.
• Green hydrogen/ammonia development guardrails: L&T will participate in domestic and international tenders but will invest in and develop assets only where long-term offtake arrangements are confirmed, providing return visibility.
• Solar development ruled out: Management has decided not to enter solar development assets, stating "it's too late in the game." Solar module and battery manufacturing are also not in the plan. Battery storage remains under study and evaluation.

Subramanian Sarma: "solar, we have made a decision not to get into development. I think it's too late in the game in my view."

Balance Sheet & Cash Flow

• NWC improvement: Net Working Capital to Sales improved from 13.9% in June 2024 to 12.2% in September 2024, driven by a drop in Gross Working Capital to Sales backed by strong customer collections during the quarter.
• Disciplined execution-collection alignment: In sectors with delayed collections, execution is managed to align with receipts. L&T's multi-segment, multi-geography presence within India enables this discipline.
• PAT growth excluding one-off: Consolidated PAT grew 5% to ₹3,400 crore; excluding the non-recurring TOD monetization gain of ₹512 crore in Hyderabad Metro in the prior year, PAT grew 25%. Growth was partly offset by lower other income due to reduced average treasury investments following last year's share buyback.
• International project cash flow benefit: The 50-50 domestic/international execution mix provides better cash flows and overall return improvement, with international project margins maintained in line with bid conditions.

Realty & Development Assets

• Realty on track for FY26 target: The business is on track to achieve its FY26 revenue goal of approximately ₹5,000 crore, with order inflows dependent on project launches in Mumbai, Bangalore, Chennai, and potentially new locations.
• Post-FY26 ambition: Management is targeting roughly three to four times growth on order inflow and revenue from the FY26 exit trajectory, pursuing both residential and commercial formats through multiple routes, including joint development.
• Land acquisition approach: New parcels are being developed largely through the joint development route; L&T is not investing in land for residential development at this juncture.
• Hyderabad Metro land monetization: Management expects some monetization to gain momentum and crystallize by the end of this financial year, though each tranche requires prior government approval.
• Data center expansion: A 2 MW data center in Panvel is expected to be commissioned in the current quarter (October–December 2024), and a 12 MW facility in Chennai is nearing completion. Plans include scaling Chennai to 30 MW and setting up centers at Mahape (Navi Mumbai) and Whitefield (Bangalore) in the near-to-medium term.

P. Ramakrishnan: "Whereas it will be difficult to comment on the period beyond FY '26, I would like to mention here that we possibly target around three to four times growth on order inflow and revenue from our exit trajectory in FY '26."

Margins

• P&M margin guidance reaffirmed: Full-year P&M portfolio margin guidance of 8.2% to 8.25% holds; management will assess Q3 before considering any revision. H1 margin improved 20 bps YoY.
• International project margin trajectory: Most international projects are fixed-price; timely completion leads to better margin realization. As large hydrocarbon projects achieve peak execution next year and cross margin recognition thresholds, on-time execution should support margin improvement. [15-16]
• FY26 margin outlook cautiously optimistic: The order book is a mix of domestic and international, high-quality and normal commercial jobs. Management sees FY26 as a good start from a margin trajectory perspective but considers putting a number premature.

P. Ramakrishnan: "the order book that we have is a mix of both domestic and international with a good mix of projects across sectors, some high-quality jobs, and also some normal commercial-related jobs. So as we end FY25, I think FY26 looks to be a good start from an overall margin trajectory perspective. But to put a number to that, I think it's a little premature."

Guidance & Commitments

Key Metrics